Market

Thursday, June 10, 2010

FARM SUBSIDIES-MAKING FOOD COSTLIER TO THE CONSUMER?

The subsidy dilemma is not confined to India alone where the national budget is full of provisions for "give away" to deserving as well as undeserving recipients of all colors and hues. But it can be an equally trouble some area of concern in other more developed countries including the US. What bothers the policy makers is whether such subsidies to farmers really influence the market dynamics as far as food is concerned. While a strong section of experts in the US believe that low cost of foods in the country is due to billions of dollars of agricultural subsidies doled out year after year, an equally assertive lobby feels the other way. It is another matter that agricultural subsidies in some developed countries sharply reduces the competitive edge for many agricultural products imported into these countries from out side, a clear violation of WTO mandate.

"What got the committee's attention, however, was my warning that drafting another business-as-usual farm bill in 2012 was going to be more difficult, because of a strengthening belief that the farm subsidies are contributing to our nation's obesity crisis by making unhealthy foods too cheap. The committee knew, and I confirmed in my testimony, that this is in fact an unfounded charge. When the farm bill places restrictions on sugar imports to protect the income of American sugar growers it actually make all sweetened products – from candy to ice cream – artificially expensive rather than cheap. And when Congress enacts subsidies and mandates to divert 30 percent of our corn crop to the making of ethanol for auto fuel, it is making both corn and other animal feeds – and hence all meat products – artificially expensive as well. Nor is it true that corn-based sweeteners are more obesity-inducing than natural sugar. Nor is it true that the price of junk food has fallen in America while the price of healthy foods (fruits and vegetables) has remained high. All of these misconceptions about farm programs are explained in Chapter Eight of my Oxford book, my chapter on "The Politics of Obesity."

Prima facie, it appears that any subsidy to agricultural commodity growing will invariably reflect their market price and processors and consumers can be expected to get these food materials at relatively low cost. But for these subsidies American farmers can never expect to export their wheat, peas, lentils and other food grains at prices much less than that prevalent in many developing countries. Already American farmers have the advantage of the economy of scales in their operations having large farms and mechanized farming tools and subsidy further helps them to dump their products in world market at significantly lower price. It is convoluted logic to claim that imported foods with lower price tag would have reduced the prices further as a response y the domestic industry. If subsidies are removed the food inflation in the US is bound to go up making every thing more expensive and the government there knows this truth.